World stocks rebound on euro bailout hope

Jeremy Gaunt, European Investment Correspondent

3 IN. DI LETTURA

LONDON (Reuters) - World stocks rose for a third straight session on Tuesday, with European shares up 2 percent, as investors took comfort from reports that officials were working to add to measures to calm the euro zone debt crisis.

After losing more than 7 percent last week, the MSCI all-country world stock index was up 1.5 percent for a 2.5 percent rebound so far this week.

The trigger has been rising expectations following weekend meetings of the International Monetary Fund that European policymakers will act to contain Greece’s debt problems and resolve a debt crisis that threatens to do serious damage to the world economy.

Some officials have said that plans are underway to boost the size of a regional bailout fund to cut Greece’s debts and recapitalize banks, although others have underlined they are at a very early stage and Germany has said there are no plans to increase the size of the fund.

“Given so much uncertainty at the moment, there is room for both pessimism and optimism. The optimists have taken the forefront on hopes that we could see European politicians getting to grips with the current situation over the coming weeks,” said Keith Bowman, analyst at Hargreaves Lansdown.

“But there are still a lot of concerns. Investors remain skeptical.”

The pan-European FTSEurofirst 300 index was up 2.4 percent after rising 1.8 percent on Monday.

Japan’s Nikkei gained 2.8 percent.

EURO FLAT

The relative bullishness did not spill over onto foreign exchange markets where the euro was flat at $1.3540, just above 8-month lows.

“Any indication that European politicians will take fundamental steps to contain the debt crisis is positive for the euro, but we have had so many disappointments and this is not something that can be fixed overnight,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

“A lot of investors are looking to reset new short euro positions around $1.36, maybe around current levels.”

The dollar was lower against a basket of currencies.

Core euro zone debt prices were lower as the stock markets recovered. They have been rising sharply in a risk aversion trade.

But eyes remained on the debt-strapped periphery.

Italy will kick off a busy week of debt sales with short-term and zero coupon debt. The country will issue longer-term debt later this week in a more rigorous test of investor appetite for lower-rated euro zone paper.